Consultation on change to Investment Policy
8 March 2022
Triple Point Social Housing REIT plc
(the "Company" or, together with its subsidiaries, the "Group")
Consultation on change to Investment Policy
The Board of Triple Point Social Housing REIT plc (ticker: SOHO) announces that, following the Company's consultation with a number of shareholders, the Board and Triple Point Investment Management LLP (the "Investment Manager") believe that making certain changes to the Company's investment policy and investment restrictions would be in the best interests of the Company.
In summary, the Company proposes to make the following changes to its investment policy and investment restrictions:
· Removing the Company's minimum lease term restriction
· Allowing the Company to selectively take on the cost of funding planned maintenance
· Giving the Company the ability to enter into leases which are subject to upward only adjustments, tracking either inflation or central housing benefit policy
The proposed changes to the investment policy and investment restrictions are detailed in the Appendix to this announcement.
Background to and rationale for the proposed Investment Policy amendments
The Company was one of the first listed investment trusts to invest equity directly into Specialised Supported Housing. Since its IPO in 2017, it has deployed over £590 million into over 450 properties and delivered cumulative total shareholder returns of over 25 per cent.
During that time, the sector has evolved, and as a responsible investor the Company has moved forward alongside it. The Company has developed the Leases it enters into to reflect the collective learnings of the sector and to maximise their effectiveness.
In 2019, the Company introduced a change in law clause into new Leases which facilitated proportionate risk sharing with Approved Providers if there was to be a material future change in housing benefit policy. The Company has also consistently increased the reporting obligations of Approved Providers, strengthened the Company's right to assign Leases if an Approved Provider is underperforming, and introduced 'Green Lease' provisions. Collectively, these changes have helped ensure that the Company's investments generate stable and sustainable financial returns for investors and deliver social impact.
The Company operates in a regulated sector and the Investment Manager maintains an ongoing dialogue with the Regulator of Social Housing (the "Regulator") alongside its Approved Providers. The Regulator has publicly commented on the risks associated with leases in the specialised supported housing sector. Increasingly Approved Providers are looking to evolve the terms of the leases they enter into going forward, in part to address the observations made by the Regulator. Simultaneously, over the last six months the Investment Manager has seen an increasing prevalence of new lease structures in the sector and the endorsement of those new lease structures by other investors.
The Company remains determined to deploy capital into good quality homes leased to the best Approved Providers in the sector. The Company is proposing to change its investment policy and investment restrictions at this time, to ensure it has the requisite flexibility to continue to be at the forefront of this evolving sector, allow Approved Providers to accommodate points raised by the Regulator, and thereby remain an attractive partner.
The Company has carefully considered the impact that implementing these changes will have on its performance, income and capital return targets going forward. The Investment Manager has identified a pipeline of attractive opportunities which incorporate lease terms compatible with the proposed changes to the investment policy. These opportunities are consistent with the Company's income and capital return targets, and will be supported by formal valuation advice from the Company's independent valuer, Jones Lang LaSalle Limited.
Shareholder and regulatory approval
The proposed amendments are considered, in aggregate, to constitute a material change to the Company's published investment policy. Therefore, pursuant to LR 15.4.8, the Company is required to first obtain approval of these changes from the Financial Conduct Authority and subsequently from its shareholders. Shareholder approval will be sought by way of an ordinary resolution which will be proposed at the Company's Annual General Meeting to be held on 27 May 2022.
Details of the proposed amendments to the investment policy and investment restrictions will be set out in the Notice of AGM contained in the circular to be sent to shareholders in due course. This document will be available on the Company's website www.triplepointreit.com .
FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:
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Triple Point Investment Management LLP (Investment Manager) |
Tel: 020 7201 8989 |
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Max Shenkman |
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Isobel Gunn-Brown |
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Akur Capital (Joint Financial Adviser) |
Tel: 020 7493 3631 |
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Tom Frost |
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Anthony Richardson |
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Siobhan Sergeant |
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Stifel (Joint Financial Adviser and Corporate Broker) |
Tel: 020 7710 7600 |
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Mark Young |
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Mark Bloomfield |
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Rajpal Padam |
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The Company's LEI is 213800BERVBS2HFTBC58.
Further information on the Company can be found on its website at www.triplepointreit.com .
APPENDIX
Proposed Amended Investment Objective and Investment Policy:
Investment Objective
The Company's investment objective is to provide Shareholders with stable, long-term, inflation-linked income from a portfolio of Social Housing assets in the United Kingdom, with a particular focus on Supported Housing assets. The portfolio comprises investments into operating assets and the forward funding of pre-let development assets, the mix of which the Company seeks to optimise to enable it to pay a covered dividend increasing in line with inflation and generate an attractive risk-adjusted total return.
Investment Policy
In order to achieve its Investment Objective, the Company invests in a diversified portfolio of freehold or long leasehold Social Housing assets in the UK. Supported Housing assets to be acquired and/or held account for at least 80 per cent. of Gross Asset Value. The Company acquires portfolios of Social Housing assets and single Social Housing assets, either directly (in the case of property-holding SPVs) or via intermediate holding companies (in the case of direct property assets). Assets are then held over the long term by the Company in an intermediate holding company structure. Each asset is subject to a Lease or occupancy agreement with an Approved Provider.for terms primarily ranging from 20 years to 30 years, with the The rent payable thereunder is, or is expected to be, subject to adjustment in line with inflation (generally CPI) or central housing benefit policy. Title to the assets remains with the Group under the terms of the relevant Lease. The Group is not primarily responsible for any management or maintenance obligations under the terms of the Lease or occupancy agreement, all of which typically are serviced by the Approved Provider lessee; save that the Group may take responsibility for funding the cost of planned maintenance. The Group is not responsible for the provision of care to occupants of Supported Housing assets.
The Social Housing assets are sourced in the market by the Investment Manager and from the Triple Point Group.
The Group intends to hold the Portfolio over the long term, taking advantage of generally long term, upward only Leases which are, or are expected to be, inflation-linked to inflation or central housing benefit policy. The Group will not be actively seeking to dispose of any of its assets, although it may dispose of investments should an opportunity arise that would enhance the value of the Group as a whole.
The Group may forward finance the development of new Social Housing assets when the Investment Manager believes that to do so would enhance returns for Shareholders and/or secure an asset for the Group's Portfolio at an attractive yield. Forward funding will only be provided in circumstances in which:
· there is an agreement to lease the relevant property upon completion in place with an Approved Provider;
· planning permission has been granted in respect of the site; and
· the Group receives a coupon on its investment or equivalent reduction in the purchase price (generally slightly above or at least equivalent to the projected income return for the completed asset) during the construction phase and prior to the commencement of the relevant Lease.
For the avoidance of doubt, the Group will not acquire land for speculative development of Social Housing assets.
In addition, the Group may engage third party contractors to renovate or customise existing Social Housing assets, as necessary.
Gearing
The Company seeks to use gearing to enhance equity returns. The Directors will employ a level of borrowing that they consider to be prudent for the asset class and will seek to achieve a low cost of funds, whilst maintaining flexibility in the underlying security requirements and the structure of both the Portfolio and the Group.
The Directors intend that the Group will target a level of aggregate borrowings over the medium term equal to between 35 to 40 per cent. of the Group's Gross Asset Value. The aggregate borrowings will always be subject to an absolute maximum, calculated at the time of drawdown, of 50 per cent. of the Gross Asset Value.
Debt will typically be secured at the asset level, whether over a particular property or a holding entity for a particular property (or series of properties), without recourse to the Company and also potentially at the Company or SPV level with or without a charge over some or all of the assets, depending on the optimal structure for the Group and having consideration for key metrics including lender diversity, cost of debt, debt type and maturity profiles.
Use of derivatives
The Company may utilise derivatives for efficient portfolio management. In particular, the Company may engage in full or partial interest rate hedging or otherwise seek to mitigate the risk of interest rate increases on borrowings incurred in accordance with the Investment Policy as part of the Company's portfolio management. The Group will not enter into derivative transactions for speculative purposes.
Investment restrictions
The following investment restrictions apply:
· the Group will only invest in Social Housing assets located in the United Kingdom;
· the Group will only invest in Social Housing assets where the counterparty to the Lease or occupancy agreement is an Approved Provider. Notwithstanding that, the Group may acquire a portfolio consisting predominantly of Social Housing assets where a small minority of such assets are leased to third parties who are not Approved Providers. Provided that the assets leased to third parties who are not Approved Providers are acquired as part of a portfolio acquisition where no less than 90 per cent. (by value) of the assets are leased to Approved Providers and, in aggregate, all such assets within the Group's total portfolio represent less than 5 per cent. of the Gross Asset Value at the time of acquisition, this will remain within the Investment Policy;
· at least 80 per cent. of the Gross Asset Value will be invested in Supported Housing assets;
· the unexpired term of any Lease or occupancy agreement entered into (or in the case of an acquisition of a portfolio of assets, the average unexpired term of such Leases or occupancy agreements) shall not be less than 15 years, unless the Investment Manager reasonably expects the term of such shorter Lease or occupancy agreement (or in the case of an acquisition of a portfolio of assets, the average term of such Leases or occupancy agreements) to be extended to at least 15 years;
· the maximum exposure to any one asset which, for the avoidance of doubt, will include houses and/or apartment blocks located on a Contiguous basis, will not exceed 20 per cent. of the Gross Asset Value of the Group;
· the maximum exposure to any one Approved Provider will not exceed 30 per cent. of Gross Asset Value, other than in exceptional circumstances for a period not to exceed three months;
· the Group may forward finance Social Housing units in circumstances where there is an agreement to lease in place and where the Group receives a coupon on its investment or equivalent reduction in the purchase price (generally slightly above or equal to the projected income return for the completed asset) during the construction phase and prior to the entry into the Lease. The sum of the total forward financing commitments will be restricted to an aggregate value of not more than 20 per cent. of the Net Asset Value of the Group, calculated at the time of entering into any new forward funding arrangement;
· the Group will not invest in other alternative investment funds or closed-ended investment companies (which, for the avoidance of doubt, does not prohibit the acquisition of SPVs which own individual, or portfolios of, Social Housing assets);
· the Group will not set itself up as an Approved Provider; and
· the Group will not engage in short selling.
The investment limits detailed above apply at the time of the acquisition of the relevant asset in the Portfolio. The Group will not be required to dispose of any investment or to rebalance its Portfolio as a result of a change in the respective valuations of its assets or a merger of Approved Providers.
Changes to the Investment Policy or Investment Objective
Any material removal, amendment or other modification of the Company's stated Investment Objective or Investment Policy, or additional investment restrictions, will only take place with the approval of Shareholders in a general meeting.
Cash management policy
Cash held for working capital purposes or received by the Group pending reinvestment or distribution will be held in Sterling only and invested in cash, cash equivalents, near cash instruments and money market instruments. The Board determines the cash management policy in consultation with the Investment Manager.
REIT status
The Directors will at all times conduct the affairs of the Company so as to enable it to the extent possible to remain qualified as a REIT for the purposes of Part 12 of the CTA 2010 (and any regulations made thereunder).
Other
In the event of a breach of the Investment Policy and restrictions set out above, the Investment Manager shall inform the Directors upon becoming aware of the same and, if the Directors consider the breach to be material, notification will be made to a Regulatory Information Service.
Application of the Investment Policy to Ordinary Shares
The Investment Policy applies to the Group in its entirety and the restrictions set out above will be assessed across the share pool.
Defined Terms
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"ALMO" |
an arm's length management organisation, a not-for-profit company that provides housing services on behalf of a Local Authority; |
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"Approved Provider" |
a Housing Association, Local Authority, ALMO or other regulated organisation including a care provider in receipt of direct payment from local government; |
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"Contiguous" |
adjacent or adjoining in the sense of sharing a common boundary; |
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"CTA 2010" |
the Corporation Tax Act 2010 and any statutory modification or re-enactment thereof for the time being in force; |
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"Gross Asset Value" |
the aggregate value of the total assets of the Company as determined in accordance with the accounting principles adopted by the Company from time-to time; |
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"Group" |
the Company and any subsidiary undertakings from time to time; |
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"Housing Association" |
an independent society, body of trustees or company established for the purpose of providing low-cost social housing for people in housing need, generally on a non-profit- making basis. Any trading surplus is typically used to maintain existing homes and to help finance new ones. Housing Associations are regulated by the Regulator for Social Housing; |
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"Investment Manager" |
Triple Point Investment Management LLP; |
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"Lease" |
a lease including, in limited circumstances, a management agreement substantially with the same purpose and effect as a lease; |
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"Local Authority" |
the administrative bodies for the local government in England comprising of 326 authorities (including 32 London boroughs); |
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"Net Asset Value" |
the net asset value of the Company, as at the relevant date, determined in accordance with the accounting policies adopted by the Company from time to time; |
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"Portfolio" |
the portfolio of assets held by the Group from time to time; |
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"Registered Provider" |
an independent, typically not-for-profit provider of social housing in receipt of direct payment from local government and regulated by the Regulator; |
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"Regulator" |
the Regulator of Social Housing, an executive non-departmental public body, sponsored by the Ministry of Housing, Communities & Local Government; |
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"Social Housing" |
homes which are social rented, affordable rented and intermediate housing provided to specified eligible households whose needs are not met by the market (including, for the avoidance of doubt, Supported Housing homes); |
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"SPV" |
special purpose vehicle; |
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"Supported Housing" |
accommodation that is suitable, or adapted, for residents with special needs, which may (but does not necessarily): (a) include some form of personal care provided by a Care Provider; and/or (b) enable those tenants to live independently in the community; and |
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"Triple Point Group" |
the group of entities trading under the Triple Point name which includes the following companies and associated entities: Triple Point Investment Management LLP (registered in England & Wales no. OC321250), authorised and regulated by the Financial Conduct Authority no. 456597; Triple Point Administration LLP (registered in England & Wales no. OC391352) and authorised and regulated by the Financial Conduct Authority no. 618187; and TP Nominees Limited (registered in England & Wales no.07839571). |
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